[Audit Report on Agricultural Leasing and Grazing Activities, Fort Peck Agency, Bureau of Indian Affairs]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 98-I-703

Title: Audit Report on Agricultural Leasing and Grazing Activities,
       Fort Peck Agency, Bureau of Indian Affairs

Date:  September 30, 1998




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U.S. Department of the Interior
Office of Inspector General





AUDIT REPORT


AGRICULTURAL LEASING AND GRAZING ACTIVITIES,
FORT PECK AGENCY, BUREAU OF INDIAN AFFAIRS


REPORT NO. 98-I-703
SEPTEMBER 1998






AUDIT REPORT                              C-IN-BIA-002-97(D)


Memorandum

       To:  Assistant Secretary for Indian Affairs
            Special Trustee for American Indians

     From:  Robert J. Williams
            Assistant Inspector General for Audits

  Subject:  Audit   Report  on  Agricultural  Leasing  and
            Grazing Activities,  Fort  Peck  Agency,  Bureau
            of Indian Affairs (No. 98-I-703)


INTRODUCTION

This   report   presents   the   results  of  our  audit  of
agricultural leasing and grazing activities by the Fort Peck
Agency.  The objective of the audit was to determine whether
agricultural and pasture leases and  grazing  permits on the
Fort Peck Indian Reservation were managed by the  Agency  in
accordance  with  regulatory, lease, and permit requirements
and whether farming  and grazing revenues in special deposit
(suspense) accounts had been distributed.

BACKGROUND

According to the Code of Federal Regulations (25 CFR 162 for
leasing and 25 CFR 166  for  grazing),  the Bureau of Indian
Affairs  is  responsible  for approving leases  and  grazing
permits for individually owned  land[1]  or tribal land held
in  trust  that  is  negotiated by the landowners  or  their
representatives.   The  Bureau  may  also  grant  leases  on
individually owned land  on  behalf  of incompetent persons,
orphaned minors, undetermined heirs of  estates,  landowners
who  have  not  been  able  to agree upon a lease or permit,
landowners  who have given the  Secretary  of  the  Interior
written  authority   to   execute  leases  or  permits,  and
landowners  whose whereabouts  are  unknown.   The  Code  of
Federal Regulations  also states that leases and permits may
be executed either through  negotiation  or  advertising and
that  annual rents should provide for a fair annual  return.
Specifically,  the  Code states that (1) agricultural leases
are not to exceed 5 years  for dry-farming land and 10 years
for irrigable land but that,  when  lessees  are required to
make substantial improvement to the land for the  production
of  specialized  crops, leases can be made for 25 years  and
(2) grazing leases  and  range  permits  are  not  to exceed
5 years  except  when substantial development or improvement
is required, in which case the maximum period is 10 years.

To improve the management,  productivity,  and use of Indian
agricultural lands and resources, the Congress  enacted  the
American  Indian  Agricultural  Resource  Management  Act in
December  1993.   The  Act  states  that the Secretary is to
manage Indian agricultural lands to (1) protect and maintain
the highest productive potential on the  lands, (2) increase
production  and  expand  diversity on the lands,  (3) manage
lands consistent with integrated  resource management plans,
(4) enable  Indians  to  maximize  the   potential  benefits
available   to   them  by  providing  technical  assistance,
(5) develop  Indian  agricultural  lands  to  promote  self-
sustaining communities,  and (6) assist trust and restricted
Indian landowners in leasing  their  land  for  a reasonable
annual   return  consistent  with  prudent  management   and
conservation  practices.   To meet these objectives, the Act
requires   that   10-year   Indian   agricultural   resource
management and monitoring plans  be prepared and implemented
for Indian agricultural lands "within  three  years  of  the
initiation of activity to establish the plan."

The  Act stipulates that the management and monitoring plans
be developed by tribes under self-determination contracts or
self-governance  compacts  or by the Bureau if tribes choose
not to contract or compact for  the  plans.   The  Act  also
required  that  the  Bureau,  by  June 1994, contract with a
non-Federal entity to conduct an independent  assessment  of
Indian  agricultural land management and practices, which is
to include  a  comprehensive  assessment of the improvement,
funding, and development needs  for  all Indian agricultural
lands.  In addition, the Act required  that the Bureau issue
final regulations to implement the Act by December 1995.  In
June 1996, the Bureau issued proposed regulations;  however,
the  regulations  had  not been finalized as of August 1998.
Further, the Act changed  many of the requirements specified
in the Code of Federal Regulations.   For  example,  the Act
(1) authorizes  the  leasing  of  agricultural  lands to the
highest  bidder  at  rates below the appraisal amount  after
"satisfactorily" advertising  the  leases  when  such action
would be in the best interest of the landowner, (2) provides
preference  to Indian operators of agricultural leases  when
authorized by  tribal  resolution  and  when  the  landowner
receives  fair market value, (3) waives the requirement  for
bonds when  authorized  by  tribal resolution and when other
collateral is posted in lieu  of  bonds, and (4) extends the
maximum lease term for dry-farming land from 5 to 10 years.

The Fort Peck Agency of the Bureau's Billings Area Office in
Billings, Montana, is responsible for  leasing  and  grazing
activities for the Assiniboine and Sioux Tribes on the  Fort
Peck Indian Reservation.  The Reservation encompasses almost
2.1 million surface acres in northeastern Montana, including
about 535,000 surface acres of allotted (individually owned)
lands  and  381,000 surface  acres  of  tribal  lands.   The
ownership  interests  in  the  allotted  lands  are severely
fractionated.[2]   The remainder of the Reservation's  lands
are in fee status (owned  without  restrictions) and are not
subject  to  the  Bureau's  trust  responsibility.   Through
September 30, 1996, the Fort Peck Agency  performed  all  of
the  program  functions  related  to  agricultural (farm and
pasture) leasing and grazing.  However, effective October 1,
1996,    the   Assiniboine   and   Sioux   Tribes    assumed
responsibility  for  the  grazing  program  under  an Indian
self-determination   contract  except  for  fire  protection
related to grazing lands.

As  of  December  31,  1996,   the   Fort  Peck  Agency  had
administered  2,365 agricultural leases  that  consisted  of
about 180,500 acres  of  allotted lands and 169,400 acres of
tribal lands.  Annual rents  for  these leases totaled about
$3  million,  of  which  $1.75 million   was  applicable  to
allotted  lands and $1.25 million was applicable  to  tribal
lands.  The leases were all on a calendar year basis with 5-
year terms, but all of the leases did not expire in the same
year.

The Fort Peck Tribes administered 92  grazing range units[3]
under the self-determination  contract  as  of  December 31,
1996:   77  range  units  allocated by the Tribes to  Tribal
members and 15 range units  advertised and made available to
Indian and non-Indian ranchers.   Grazing  permits for these
range units were issued for the 5-year  period of January 1,
1993,  through December 31, 1997.  The 92  range  units  had
annual grazing  fees  that totaled $504,200, which consisted
of $262,700 applicable to 176,493 acres of allotted land and
$241,500 applicable to  183,031  acres  of tribal land.  The
Billings  Area Director established  minimum  grazing  rates
for the range units that were allocated to Tribal members.

The Fort Peck  Agency  had  15  staff  assigned  to the real
estate services program, and 3 of the staff were responsible
for  all  aspects of agricultural leasing.  The fiscal  year
1997 budget  for the  Agency's  real estate services program
was $437,709.

SCOPE OF AUDIT

The audit was performed at the Billings  Area Office and the
Fort Peck Agency in Poplar, Montana.  Our audit concentrated
on  leasing activities that occurred during  calendar  years
1993  through  1997;  however,  we expanded the scope in the
area of our review of revenues in special deposit (suspense)
accounts to determine whether lease  rents  and grazing fees
were distributed to landowners regardless of  when  deposits
were  made.   Because the grazing function was only recently
assumed by the  Fort  Peck  Tribes  and a complete operating
cycle  had  not  occurred  at  the time of  our  review,  we
eliminated grazing from our audit  scope.   However,  we did
analyze  the  reasonableness of the Area Director's  minimum
grazing rates for  allotted  lands  included  in  the  range
units.

Our  audit  was conducted in accordance with the "Government
Auditing Standards,"  issued  by  the Comptroller General of
the United States.  Accordingly, we  included  such tests of
records  and other auditing procedures that were  considered
necessary  under  the circumstances.  As part of our review,
we assessed the Bureau's  system  of  internal  controls and
found  weaknesses  related  to reissuing expired leases  and
clearing  special deposit accounts.   These  weaknesses  are
addressed in  the  Results  of Audit section of this report.
Our  recommendations,  if implemented,  should  improve  the
internal controls in these areas.

We also reviewed the Department's  Accountability Report for
fiscal year 1996 to determine whether  any  of  the reported
weaknesses were directly related to the objective  and scope
of  our  audit.   The  Report  cited  long-standing material
weaknesses in the Bureau's (1) management  of  trust  funds,
the  responsibility  for  which  has been transferred to the
Office of the Special Trustee for American Indians; (2) debt
collection  practices;  and  (3)  land  records  management.
These weaknesses were considered in  planning and conducting
our review.

PRIOR AUDIT COVERAGE

Neither  the  Office of Inspector General  nor  the  General
Accounting Office has issued an audit report during the past
5  years  on  agricultural   leases   and   grazing  permits
administered by the Fort Peck Agency.  However,  in  January
1998,  the  Office  of  Inspector  General  issued the audit
report "Financial Statements for Fiscal Year  1996  for  the
Office  of  the Special Trustee for American Indians Tribal,
Individual Indian  Monies,  and  Other  Special  Trust Funds
Managed by the Office of Trust Funds Management" (No.  98-I-
206).  The report presented the results of the audit of  the
statement   of  assets  and  trust  fund  balances  and  the
statement of  changes  in  trust  fund  balances for tribal,
individual Indian monies, and other special  trust  funds as
of  and for the year ended September 30, 1996, performed  by
an independent  certified public accounting firm. The report
on internal controls  stated that "the OTFM [Office of Trust
Funds Management] and the  Bureau continue to be hampered by
a lack of adequate information  systems  to  support various
trust-related activities, including land inventory  systems,
lease   management   systems,  ownership  systems,  accounts
receivable and an adequate  trust  accounting system for IIM
[Individual  Indian  Money]."  The report  identified  three
reportable conditions  that impacted the scope of our audit:
(1) suspense accounts were  not  analyzed;  (2) policies and
procedures regarding special deposit accounts  were  lacking
and  practices  regarding  these accounts were inconsistent;
and  (3)  the  system  of  policies   and   procedures   for
determining  interest  earnings for Individual Indian Monies
accounts  was  inadequate,   which  adversely  impacted  the
complete  and  timely  distribution   of  funds  to  account
holders.   These  identified  conditions and  the  resultant
recommendations were considered  in  the  preparation of our
current report.

RESULTS OF AUDIT

We  found  that  the  Fort  Peck  Agency  generally  managed
agricultural  and  pasture  leases on the Fort  Peck  Indian
Reservation in accordance with applicable regulatory, lease,
and  permit  requirements.   Specifically,  the  Agency  (1)
identified   lands   that   were   suitable   for   leasing;
(2) advertised, using sealed bidding procedures, those lands
that were available for lease; (3) ensured  that fair annual
rents   were   realized   based  on  competitive  bids   and
negotiations;  (4) made  timely   distributions   of   rents
collected  to  Indian landowners; (5) assessed interest when
rents were paid  late; and (6) enforced bonding requirements
stipulated in the  leases.   However, we also found that new
leases  were  not  usually  approved  or  granted  by  their
effective date and that some  lease  rents  and grazing fees
which  were deposited into special deposit accounts  in  the
1970s and 1980s had not been distributed to landowners.

Approved Leases

The Fort  Peck Agency did not always approve new leases in a
timely manner.   The  lease  documents  specify  that annual
rents  are  due  in advance of the lease year and rents  are
delinquent if not  paid within 30 days of the due date.  The
advertisement for the  leases  that  expired on December 31,
1996, specified that at least 25 percent of the first year's
rent was due at the time that the lease  bid  was  submitted
and that the remaining portion of  the rent was due  at  the
time  the  lease was executed and approved.  We reviewed the
Agency's  lease  logbook  to  determine  the  timeliness  of
approving new  leases and found that 115 (31 percent) of the
371 farm and pasture  leases  which  expired on December 31,
1996,  were approved timely.  Of the remaining  256  leases,
224 leases  were  approved  and granted up to 195 days after
the leases' effective dates,  and  32  leases  had  not been
granted at the time of our audit site visit in June 1997, or
almost  6 months  past  the due date.  Because Agency realty
personnel stated that approving the larger dollar leases was
their priority in awarding leases, we reviewed all 50 leases
that  had annual rents of  $3,000  or  more  (based  on  the
Agency's  universe  of  leases  rents, we classified  leases
with  annual  rents  in  excess of $3,000  as  large  dollar
leases) which expired on December 31,  1996.   We found that
only half of these leases were approved and granted  by  the
December 31   expiration  date  or  within  30 days  of  the
expiration date and that half of the leases, which had total
annual rents of  about  $125,000,  were approved and granted
from 34 to 161 days after the leases  expired.   Because the
leases were not approved and granted in a timely manner, the
landowners did not receive their rents timely.

According  to  Agency  realty personnel, the Agency did  not
have sufficient realty staff  to  simultaneously approve and
grant  leases  by  January  1,  1997,  and  to  collect  and
distribute lease rents on continuing leases.   Agency realty
personnel  further stated that their work load priority  was
to distribute  rents which had been collected for continuing
leases before they processed new leases.

Special Deposit Accounts

While the Agency effectively distributed current lease rents
and grazing fees deposited into special deposit accounts, it
did not analyze  older  special  deposit  accounts to ensure
that  the account balances were correct and  that  funds  in
these accounts  were  properly  distributed.[4]  The Code of
Federal  Regulations  (25 CFR 114)  specifies  that  special
deposit accounts are to be used for the temporary deposit of
funds  which  cannot be credited  to  specific  accounts  or
readily distributed.   However,  we  identified  revenues of
about  $164,100  that had accumulated in 56 special  deposit
accounts since the 1970s and 1980s.

Our analysis of the  56  special  deposit accounts disclosed
that the accounts were established  in  the  1960s and 1970s
and  have  had  continuing balances since the 1970s.   These
accounts have been  inactive  (including  the posting of any
interest income earned) since 1988.  However,  the crediting
of  interest  income  to  the  accounts  would significantly
increase the $164,100 balance.  Personnel  in  the  Billings
Area  and  Fort  Peck Agency Offices stated that the special
deposit account balances  for some of these 56 accounts were
in error because entries for  a distribution of funds by the
Area Office during the mid-1980s  were  not  posted  to  the
affected  special  deposit  accounts.   However, neither the
Area Office nor the Agency Office provided  documentation to
support  this  position.   We  believe  that the Agency,  in
coordination  with  the  Office of the Special  Trustee  for
American Indians, should analyze  these  accounts  to ensure
that Indian landowners receive all funds which they are due.

Recommendations

We recommend that the Assistant Secretary for Indian Affairs
ensure that the Fort Peck Agency:

     1. Initiates  the  lease  renewal process in sufficient
time to complete the approval process  before  the effective
date of agricultural and pasture leases.

We recommend that the Assistant Secretary for Indian Affairs
and the Special Trustee for American Indians ensure that the
Fort Peck Agency:

     2. Researches  the  56 special  deposit accounts  which
have old balances and updates the accounts for distributions
that  were  made previously but not recorded.   For  amounts
that  have  not  been  distributed,  the  owners  should  be
identified, the  interest should be computed and posted, and
the funds should be distributed.

We recommend that the Special Trustee for American Indians:

     3. Establish  and  implement procedures to periodically
analyze and distribute, in  a  timely manner, funds that are
in special deposit accounts.

Bureau of Indian Affairs Response  and  Office  of Inspector
General Reply

In the February 20, 1998, response (Appendix 1) to the draft
report from the Assistant Secretary for Indian Affairs,  the
Bureau  nonconcurred  with  Recommendation  1  and  did  not
address  Recommendations 2 and 3, stating that "authority in
this area  [special  deposit  accounts]  is delegated to the
Special  Trustee  [for American Indians]."    Based  on  the
Bureau's response,  we  have  revised  Recommendation  1 and
request   that   the   Bureau   respond   to   the   revised
recommendation,  which is unresolved (see Appendix 3).   The
Office of the Special  Trustee for American Indians provided
a response (Appendix 2)  to  Recommendations  2  and  3 (see
section  "Office of the Special Trustee for American Indians
Response and  Office of Inspector General Reply").  Based on
the two responses,  we have directed Recommendation 2 to the
Assistant  Secretary for  Indian  Affairs  and  the  Special
Trustee for  American  Indians  and  Recommendation 3 to the
Special Trustee for American Indians.

Recommendation 1.  Nonconcurrence stated.

     Bureau   of  Indian  Affairs  Response.    The   Bureau
nonconcurred with the recommendation to approve agricultural
and pasture leases  in a timely manner, stating that  "there
is no prescribed time  frame  or  legal  deadline by which a
lease agreement must be approved." Additionally,  the Bureau
stated that "there is no basis in statute or regulation  for
establishing `timeliness.'"  According to the Bureau, "There
are various reasons why a new lease may not be in place upon
the expiration [December 31] of a current lease and a number
of these reasons are beyond the Bureau's control."  Further,
the  Bureau stated that "the Agency's goal is to ensure that
agricultural   leases   are   processed  by  April  so  that
. . .  pasture leases are approved  prior  to the May 1 turn
out date."

     Office  of  Inspector  General Reply.  Although  Bureau
regulations  do not prescribe  a  specific  time  frame  for
approving agricultural  leases,  the  Government Performance
Results Act requires that agencies conduct  processes  in  a
businesslike  manner.  Regarding the "various reasons" as to
why a new lease  may  not  be  in place when a current lease
expires  and  the  reasons  that are  "beyond  the  Bureau's
control," we believe that some  matters  may  be  beyond the
Bureau's  control  but  that  some  may just take longer  to
complete than the Fort Peck Agency has  allowed  for  in its
leasing  process.  In this regard, the Bureau and the Agency
should determine  the  amount  of time necessary to complete
the leasing process, establish an  effective date for leases
based  on  Agency-related conditions for  beginning  farming
operations,   and  initiate  the  renewal  process  allowing
sufficient time  to  complete actions by the effective date.
Our report (No. 97-I-1100)  on  the  Colorado  River  Indian
Tribes'  management of agricultural leasing showed that  the
Tribes "initiated  actions in a timely manner to ensure that
expiring leases were  reissued  [approved] without a loss of
revenue to the landowners."  Similarly,  we believe that the
suggested actions will provide the Bureau with the basis for
measuring  the  Agency's  performance for accomplishing  its
goal "that agricultural leases  are processed by April"  and
also provide the individual landowners with a date when they
can  reasonably expect lease payments  to  begin.   We  have
revised  the  recommendation  to  focus  on  the  timing  of
initiating  the  lease renewal process and the establishment
of a lease effective date.

Recommendations 2  and  3.   Concurrence/nonconcurrence  not
stated.

     Bureau  of  Indian  Affairs Response.  The Bureau noted
that  while the report acknowledged  the  Special  Trustee's
responsibility,  "the  recommendations were directed to" the
Assistant  Secretary for  Indian  Affairs  rather  than  the
Special Trustee  for  American  Indians.   The Bureau stated
that  while it has "every intention of working  closely  and
cooperatively   with   the  Special  Trustee,"  it  has  not
"address[ed] these two recommendations  as authority in this
area [special deposit accounts] is delegated  to the Special
Trustee."  The Bureau requested that "the section on Special
Deposit Accounts be eliminated from the report  or  included
under  Other  Matters  with  appropriate  reference  to  the
financial statement audit report."

     Office  of Inspector General Reply.  As a result of the
Bureau's  response,   we   requested   written  comments  to
Recommendations  2  and  3 from the Office  of  the  Special
Trustee for American Indians,  and we received a response on
June 12, 1998.  Based on the responses,  we  have  addressed
Recommendation  2  to  both  the  Special  Trustee  and  the
Assistant   Secretary   because   the   Special  Trustee  is
responsible for management of Indian trust assets, including
special  deposit  accounts,  and  the  Assistant  Secretary,
through the Bureau, controls many land and  related  records
needed  to research and update the special deposit accounts.
Further,  both  organizations have expressed the willingness
to  work cooperatively  to  resolve  the  matter.   We  have
addressed  Recommendation  3  to the Special Trustee because
the   Special  Trustee  is  responsible   for   establishing
consistent  written  policies  and procedures for trust fund
management  and accounting.  We also  added,  to  the  Prior
Audit Coverage section, reference to the January 1998 Office
of Inspector  General audit report "Financial Statements for
Fiscal Year 1996  for  the Office of the Special Trustee for
American Indians Tribal, Individual Indian Monies, and Other
Special Trust Funds Managed  by  the  Office  of Trust Funds
Management" (No. 98-I-206) because the report discusses  the
overall  weakness  in accounting for individual Indian money
accounts, including  special  deposit accounts.  However, we
did not, based on the financial statement audit of the trust
funds, eliminate or move to an  Other Matters section of the
report our finding on special deposit  accounts  because our
finding  accurately  describes a condition we identified  at
the   Fort  Peck  Agency  and   because   the   High   Level
Implementation  Plan  of  the  Trust  Management Improvement
Project, which details Departmental actions to improve trust
fund  accounting,  had not been issued or  referred  to  the
Assistant Secretary  for  Policy,  Management and Budget for
tracking  of  implementation.   This  occurred  because  the
Implementation Plan was not issued until  July  1998,  or  6
months after the report was issued.

In  its response, the Bureau provided additional comments on
the report as follows:

     -  Results of Audit.  The Bureau disagreed with the our
use of the  words  "issuing"  and  "reissuing" leases rather
than "granting" or "approval" of leases,  which it said were
the  terms used  in the statutes and regulations.   We  have
revised  the  report   as   appropriate   to   correct   the
terminology.

     -   Other  Matters.   The  Bureau  disagreed  with  the
inclusion  of  the  Other  Matters  section  in  our  report
concerning   the   establishment   of  the  Area  Director's
reservation  minimum  acceptable  grazing   rate   for   all
individually  owned  lands.   The  Bureau  stated  that "the
minimum rate has to be established prior to the bidding"  on
the  advertised  range  units.   Therefore, according to the
Bureau, it would not be possible to  determine  whether  the
minimum rate compares favorably to the bid rates until after
the "bids are received."  In addition, the Bureau stated:

     There is a difference between a minimum acceptable
     bid  for any range unit on the reservation and the
     highest  bid that the best range unit may command.
     That  distinction  is  not  made  in  the  report.
     Unallocated  range  units  advertised  for grazing
     permits represent a diminishing resource  for non-
     tribal  ranchers,  and  as  such,  command  higher
     competitive   prices  which  are  not  necessarily
     indicative or representative of fair market values
     for the vast majority of the reservation lands.

We provided this information   as  other  matters  to inform
management  about  a  situation  that  we believe should  be
considered when determining fair annual  return to allottees
whose lands are included in allocated range units.  However,
since  completion  of our fieldwork, the General  Accounting
Office has initiated  a  review  of  the  Bureau's appraisal
process.   In  addition,  the  Trust Management  Improvement
Project  includes  a  subproject  to   review  the  Bureau's
appraisal  program.   Therefore,  based  on   the   Bureau's
comments  and  the  other  comprehensive  reviews,  we  have
deleted the Other Matters section from the final report.

Office  of the Special Trustee for American Indians Response
and Office of Inspector General Reply

In the June  12,  1998,  response  (Appendix 2) to the draft
report  from  the  Deputy  Special Trustee  for  Operations,
Office  of the Special Trustee  for  American  Indians,  the
Office concurred with Recommendations 2 and 3.  Based on the
response,  we  consider Recommendations 2 and 3 resolved but
not    implemented.     Accordingly,    the    unimplemented
recommendations  will be referred to the Assistant Secretary
for  Policy,  Management   and   Budget   for   tracking  of
implementation (see Appendix 3).

Recommendation 2.  Concurrence stated.

     Office  of  the  Special  Trustee  for American Indians
Response.   The  Office stated that the "56 special  deposit
accounts have to be updated and distributed and [the Office]
agrees to work in  coordination with the Assistant Secretary
- Indian Affairs, and  the  Bureau  of  Indian Affairs (BIA)
field  staff."   According to the Office, Bureau  of  Indian
Affairs realty field  staff needs to research the 56 special
deposit accounts as to  ownership  and distribution, and the
Office  of  Trust  Funds  Management  can   then   post  the
distribution    and    "perform   the   necessary   interest
calculations."  The Office  stated that, "[t]he research and
clearing of Special Deposit accounts  has  surfaced"  as  an
issue  in  the  Trust  Management  Improvement Project.  The
Office further stated, "A separate, joint OST/BIA [Office of
the  Special  Trustee  for American Indians  and  Bureau  of
Indian Affairs] effort,  most  likely  on  an  Area  by Area
basis, is the likely approach."

     Office  of Inspector General Reply.  We noted that  the
High Level Implementation  Plan  for  the  Trust  Management
Improvement  Project  includes  four subprojects which  will
address  the  deficiencies  with special  deposit  accounts:
Office of the Special Trustee financial data cleanup, Bureau
of  Indian  Affairs resource data  cleanup,  Bureau  probate
backlog, and Office of Hearings and Appeals probate backlog.
Based on the  subprojects  included  in  the  Implementation
Plan, we consider the recommendation resolved.

We recognize that other audit reports, such as  the audit of
the Office of the Special Trustee's financial statements for
trust  funds  for  fiscal  year  1996 (Report No. 98-I-206),
contain   recommendations  that  address   special   deposit
account  balances, and we will coordinate with the Assistant
Secretary  for  Policy,  Management  and  Budget to ensure a
single  tracking of implementation efforts  on  the basis of
the Implementation Plan dated July 1998.

Recommendation 3.  Concurrence stated.

     Office  of  the  Special  Trustee  for American Indians
Response.  The Office agreed to "work in  coordination" with
the Assistant Secretary for Indian Affairs and the Bureau on
this recommendation, stating that it is taking  "a  national
approach  to  this issue, rather than focusing on any single
agency" and that  it  will  "develop standardized policy and
procedures for special deposit accounts."

     Office  of  Inspector General  Reply.    Based  on  the
response, we consider  the  recommendation  resolved but not
implemented.

In accordance with the Departmental Manual (360  DM 5.3), we
are requesting written responses to this report by  November
9,  1998.   The  responses  should  provide  the information
requested in Appendix 3.

The   legislation,  as  amended,  creating  the  Office   of
Inspector  General  requires  semiannual  reporting  to  the
Congress  on  all  audit  reports  issued,  actions taken to
implement audit recommendations, and identification  of each
significant  recommendation  on which corrective action  has
not been taken.

We appreciate the assistance of  Bureau and Office personnel
in the conduct of our audit.

**FOOTNOTES**

[1]:"Individually owned land" as used in the Code of Federal
Regulations (25 CFR 162 for leasing and  25 CFR 166 for grazing) is defined
as "land or any interest therein held in  trust  by  the  United  States
for the benefit  of individual Indians and land or any interest therein
held  by individual Indians subject to Federal restrictions against
alienation or encumbrance."

[2]:Fractionated  ownership  has  resulted  because  many
Indians  died without  wills.   As  a  result,  over  a  period  of
generations, many allotments became jointly owned by hundreds of heirs.

[3]:A range unit is a tract of land designated as a management
unit for administering  grazing  and  may  include  tribal, allotted, fee,
and/or Government lands that have been consolidated for grazing
administration.

[4]:The Bureau is responsible for administering  leases  on
tribal  and individually  owned  lands.   However,  the  Department's  Office
of the Special  Trustee  for  American  Indians is responsible for
establishing proper controls and accountability  for  managing trust funds,
including trust funds deposited in the Individual Indian  Money  accounts
system, which includes special deposit accounts.


APPENDIX 1
Page 1 of 4


APPENDIX 1
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APPENDIX 1
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APPENDIX 1
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APPENDIX 1
                                                     Page  1 of 4

APPENDIX 2

APPENDIX 1
                                                     Page  1 of 4

APPENDIX 3

             STATUS OF AUDIT REPORT RECOMMENDATIONS


-----------------------------------------------------------------
----------------------
Finding/
Recommendation
Reference   Status         Action Required

-----------------------------------------------------------------
----------------------
    1       Unresolved.    Provide a response to the revised
    recommendation.  If
                           concurrence is indicated, provide a
                           plan identifying actions
                           to be taken, including the target date
                           and the title of the
                           official responsible for
                           implementation.  If nonconcurrence
                           is indicated, provide specific reasons
                           for the
                           nonconcurrence.
------------------------------------------------------------------
----------------------
 2 and 3    Resolved;      No further response to the Office of
 Inspector General is
            not            required.  The recommendations will be
            referred to the
            implemented.   Assistant Secretary for Policy,
            Management and Budget for
                           tracking of implementation.
------------------------------------------------------------------
------------------------------------------------------------------






ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

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Office of Inspector General
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Calling:

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Outside the Continental United States


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Calling:
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U.S. Department of the Interior
Office of Inspector General
North Pacific Region
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Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279